Fearful symmetry

CHINA'S policymakers are a wary and watchful bunch. Their party's sole claim to legitimacy is economic stability, and they guard it jealously. In the euro area's crisis, there is plenty for them to guard against: the European Union accounts for a fifth of China's exports.

This external problem comes on top of twin dangers at home. China's efforts to tighten credit have starved the country's small enterprises of badly needed finance, forcing them into the clutches of black-market lenders who charge usurious rates of interest. The housing market is also slowing. Sales fell by almost 12% in October, compared with a year earlier.

In response, China's policymakers are easing their macroeconomic grip one finger at a time. In October Wen Jiabao, the prime minister, visited the eastern city of Wenzhou, where entrepreneurs have suffered gravely from the credit crunch. Taxmen and regulators should go easy, he said, on banks that lend to small companies. Mr Wen later visited a special economic zone in Tianjin and said banks and local governments should give high-tech firms their full support. In October bank lending quickened, filling some of the gap left by shadow lenders.

But this easing remains subtle. Mr Wen and other officials have begun to talk of “fine-tuning”, suggesting existing controls may be a semitone too sharp, but no more. Interest rates have not been cut; nor have the reserve requirements that oblige larger banks to set aside over a fifth of their deposits. The clampdown on loans made off the books or outside the banking system remains in force.

Some are beginning to wonder if China's wary policymakers are too cautious. But the truth is that fears about growth are tempered by two other lingering concerns: that inflation might revive and that the property market might catch fire once more.

Inflation has fallen from 6.5% in the year to July to 5.5% in October. But 5.5% is still too high for policymakers' comfort. Nor do they yet think they have stabilised the property market. On a trip to Russia Mr Wen emphasised that “there will not be even the slightest faltering in the property-market curbs.” These curbs include restrictions on multiple home-purchases, stiff downpayments for homebuyers, and a lid on lending to developers. Zhuhai, a city in Guangdong province, has even imposed price controls on advance sales.

Such curbs are designed to rein in developers, but not to retard house building overall. Policymakers in Beijing have harried local governments to start work on 10m affordable units this year. They want prices to fall modestly without halting construction. That would appease homebuyers and keep concrete-pourers in jobs.

China claims already to have met its affordable-housing target for the year. But these efforts have prevented neither a marked slowdown in China's demand for steel and cement over the past 18 months (see chart), nor a more recent plunge in steel and iron-ore prices. This suggests the strong construction figures are overstated, says Rosealea Yao of GaveKal Dragonomics. One official admits work on a third of the social-housing units has not got beyond a hole in the ground.

Property accounts for a quarter of China's fixed investment, and investment makes a big contribution to growth. The upshot, says Paul Cavey of Macquarie Securities, is that property needs a soft landing if the economy is to have one too. If construction does slump or the euro crisis deepens, China's policymakers will eventually let go of their worries about inflation and speculation. They will feel compelled to loosen further. Never fear.